Initially started as a special project in March 2018 to improve overall inventory accuracy, the IOC has become the spearhead of this reform effort.

As the Department of Defense is working on the Congressional mandate to achieve a clean audit, NAVSUP WSS is doing its part to contribute to the Navy’s auditability efforts, and the IOC is taking the lead for NAVSUP. The IOC is responsible for centralized planning, coordination, oversight and reporting of the command's $34 billion Navy Working Capital Fund Supply Management (NWCF-SM) inventory.

“With 1,400 inventory locations and a dollar value around $34 billion, you don’t just execute an initiative of this magnitude without a plan, a work structure, embedded controls and processes, and specific assignments to people across the enterprise,” said Ronald Wilson, special projects, NAVSUP WSS. “That's exactly what we aim to do with the IOC.”

Approximately 30 employees located in Mechanicsburg, Pennsylvania, and Philadelphia compose the IOC, augmented by several full-time U.S. Navy Reserve officers and contracted professionals. Moving into this year, the IOC is focused on improving and standardizing the auditing of inventory at organic inventory warehouse management sites, commercial sites, organic U.S. Navy repair sites and shipyards.

In order to accomplish this goal, the IOC conducts dedicated visits to test internal controls at NWCF-SM inventory sites. The planned visit schedule targets locations that encompass the complete range of inventory segments.

“In accounting for every weapon system, every part, every office and every warehouse, there were pockets of excellence where we knew we could exceed the standard of having at least 98 percent of what we think we have and where we think we have it,” said Lynn Kohl, vice commander, NAVSUP WSS. “But we also discovered some areas where we need to improve. That's the way big business runs, and it's where we find ourselves today.”

Fortunately, NAVSUP WSS is able to apply lessons other agencies have learned that have received an audit. The Department of Homeland Security, and the Coast Guard as a component of DHS, have already undergone their initial audit and are able to provide some lessons and best practices, according to Wilson.

Using techniques proven to be effective by the Coast Guard’s successful audit, the IOC site visits test internal controls, facilitate remediation and re-test those controls. While inventory counts are routine, the IOC is employing dedicated efforts to ascertain insight into documented processes and procedures. Prior to concluding a site visit, an IOC representative transmits specific data requirements back to the team. The site visit reports are carefully reviewed, and procedural adjustments are made as needed.

Site audits at commercial sites present additional challenges. Representatives from Ernst & Young - the accounting firm that led the Navywide audit in 2018 - also lead these external site visits. The ability of the IOC to tailor the control of the visit, as well as follow-up activities, is inherently limited.

“We need to give different considerations to commercial vendors, because they have their own concerns, rules, structure and their own way of doing business,” Wilson said. “We don't simply impose our standard operating procedures on commercial entities.”

The one key common denominator with commercial sites is the commercial asset visibility system (CAV).

“CAV provides us the visibility of the inventory that we need for commercial activities,” he added.

The web-based CAV inventory feeder system feeds into the Navy Enterprise Resource Planning system (ERP) which is the Accountable System Program of Record across the Navy. In order to further streamline inventory tracking, there is an active transition underway to drive nearly all non-commercial plants to utilize the ERP-integrated warehouse management business logistics system. Commercial vendors will continue to utilize CAV, however, NAVSUP is considering options to further integrate CAV functionality into ERP in the future.

Some of the challenges the IOC faces are a result of decades’ worth of efforts to become as lean and cost-effective as possible, according to Kohl.

“Years ago, the NAVSUP enterprise used to be what I would call a closed loop,” said Kohl. “We owned all of our inventory. We owned all of the systems that manage the inventory. We owned all of the supply centers that distributed the inventory.”

Over the years, the organization decentralized its inventory, for good reasons, Wilson said. For instance, the Defense Logistics Agency now manages consumables, and technological advancements ushered in the adoption of a variety of new electronic inventory management systems. Additionally, along with all Department of Defense agencies, NAVSUP evolved with the idea of doing more with less in the name of efficiency and cost-effectiveness. Auditability was simply not the top priority.

“We changed over time and evolved,” Kohl said. “We took advantage of technology and made some good decisions. Now, we have more of a decentralized arrangement with a variety of partners, providers, warehouses, custodians and inventory management systems, so we will continue to evolve."

“How we achieve a clean audit is now a very complex question,” Kohl added. “With the Inventory Operations Center, we are going to find definitive answers.”